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PPPs in Canadian Healthcare
PPPs in Canadian Healthcare
Public-private partnerships
in Canadian health care
A case study of the Brampton Civic Hospital
Public-private partnerships
in Canadian health care: A case study
of the Brampton Civic Hospital
by
In recent years, the cost of delivering health care in developed and developing countries has been
rising exponentially. Governments around the world are searching for alternative mechanisms
to reduce costs while increasing the capacity of social programmes with significant investments
in infrastructure. A number of jurisdictions have begun to utilise public-private partnerships
(PPPs) as a means of achieving these objectives. The use of PPPs in the Canadian health system
is a relatively new phenomenon. Generally, the success of PPP projects is evaluated on the basis
of the qualitative outcomes of the project, most commonly in a value-for-money analysis.
In this article, we explore whether quantitative elements are sufficient to measure PPPs in
politically sensitive areas of public policy, such as health care. We propose that the best way to
evaluate the outcomes of PPPs in public health system projects requires both quantitative and
qualitative criteria. We use a framework developed from neo-institutional economics that
contextualises outcomes through a balance of quantitative and qualitative assessment criteria.
We apply this evaluation framework to a specific Canadian case study in order to determine key
success factors for future PPP health infrastructure projects. The analysis concludes that, given
the complex and politically sensitive nature of health care, particular attention must be paid to
communications and public relations and to design and post-construction planning in order to
deliver a successful PPP.
JEL classification: H400, H750
Keywords: government service delivery, public-private partnerships, PPPs, health infrastructure
projects, capital projects, value for money, public relations, communications, Ontario, Canada
* David Barrows is Associate Director, MPA Programme, Schulich School of Business, York University,
Toronto, Canada. H. Ian MacDonald is President Emeritus and Professor of Economics and Policy,
York University. A. Bhanich Supapol is Director, International MBA Programme, Schulich School of
Business, York University. Olivia Dalton-Jez and Simone Harvey-Rioux are MBA candidates in the
Schulich School of Business, York University, Canada.
1
PUBLIC-PRIVATE PARTNERSHIPS IN CANADIAN HEALTH CARE: A CASE STUDY OF THE BRAMPTON CIVIC HOSPITAL
1.4. Methodology
This study examines public-private partnerships in the context of the Canadian
health-care system with specific reference to a case study of the Brampton Civic Hospital
in the province of Ontario. The methodology is based upon:
1. identification of a PPP hospital capital project (Brampton Civic Hospital);
2. a detailed literature review;
3. a survey of over 2 300 health-care professionals in the province of Ontario (response rate
approximately 10%);
4. interviews with selected knowledge leaders in the field;
5. a review of the report of the Auditor General of Ontario;
6. benchmarking key health indicators in Ontario; and
7. a factor analysis based upon the survey responses regarding risk.
Our research and analysis resulted in the identification of emerging critical issues. We
then drew conclusions and recommendations with respect to our findings that will be of
value for future PPPs in Canada and to colleagues in other jurisdictions and countries.
2. Case study
2.1. Purpose/aim of the study
Given the recent interest in public-private partnerships as a mechanism to meet
infrastructure needs in the public sector while managing government deficits, this case
study examined what the critical success factors are for provincial governments to
Brampton Ontario
Source: Government of Ontario (2006), Socio-Economic Indicators Atlas: Central West Local Health Integration Network,
Health System Intelligence Project, Queen’s Printer for Ontario.
The need for a new hospital in the area was identified in the early 1990s, as steady
population growth in Brampton was stressing the system’s ability to provide necessary
health services to the region. As such, in the late 1990s the Ontario government announced
that a new hospital would be built in the Brampton area to fulfil these needs. In May 2001,
the provincial Minister of Finance announced that the hospital would be built using a PPP
model (Auditor General of Ontario, 2008).
Building/construction
The physical construction of the hospital occurred over the three-year period 2004-07.
During that time, there were two key changes relating to governance. The first was the
creation of Infrastructure Ontario, a Crown agency with the mandate to oversee all
alternative financing and procurement (AFP) projects in the province; AFP was a term
developed by the Ontario government to describe various types of PPPs. The second major
change was the passing of the Local Health Integration Network Act in March 2006. The
legislation established 14 regional bodies in the province to oversee the funding, planning
and integration of health services in Ontario. The Brampton Civic Hospital fell under the
mandate of the Central West LHIN.
Throughout the building period, the cost estimates for the hospital construction
changed. Initially, following the finalisation of a contract with the HICC of CAD 467 million
for design, construction and provision of non-clinical services over a 28-year period, the
WOHC updated the cost estimates to build the facility under the traditional approach to
CAD 525 million. This amount included CAD 67 million in design and construction risks
that the hospital estimated could be transferred to the private sector under the PPP
arrangement, amounting to a 13% cost overrun with respect to the government
procurement model.
Initial operation
The hospital initially opened with 479 funded beds in December 2007. The
government intended to phase in the remaining beds over the years as demand for services
grew in the Brampton community. Prior to the opening of the hospital, the William Osler
Health Centre decided to temporarily close another site, the Peel Memorial Hospital. The
decision to close the other site was made on the basis of discussion in the months leading
up to the opening of the Brampton Civic Hospital regarding resource availability, both
human and financial. In the weekend leading up to the hospital’s opening, a “flash cut”
was undertaken to move patients, staff, records and equipment from the Peel Memorial
Hospital to the new Brampton Civic campus. In total, 234 patients were transferred to the
new facility (CBC, 2007).
In December, following the deaths of two patients who were admitted through the
emergency room at the Brampton Civic Hospital (BCH), concern in the community began to
grow. The patients’ families and the media speculated that the long waits and lack of
sufficient staff in the emergency room had led to medical errors in the deaths of the two
patients. The concerns of the community peaked in December 2007 when over
1 500 people marched in protest through the streets of Brampton, demanding that the
government take action. The political opposition and the community advocacy groups
blamed the PPP arrangement for the medical issues at BCH.
In late December 2007, the Premier of Ontario appointed a hospital supervisor.
Provision for the appointment of a hospital supervisor is given in an article in the 1990
Public Hospitals Act of Ontario. Under the Act, a hospital supervisor can only be appointed
on the recommendation of the Minister of Health and Long-Term Care when it is
considered in the public’s best interest to do so. The Lieutenant Governor in Council must
approve the appointment and the government must give 14 days notice to the hospital
board before the appointment. When in place, the supervisor has the exclusive rights to
exercise all the powers of the board and chief executive officer (Service Ontario, 2010).
The Brampton Civic Hospital was the first health capital PPP in Ontario. Due to some
of the issues and concerns with respect to the PPP exercise in the development of
Brampton Civic Hospital, it provides an excellent opportunity for a detailed case study
analysis.
Contextualised outcomes
● government officials;
● officials from other provinces;
● consultants.
These interviews were utilised to create a survey instrument administered to over
2 300 health-care professionals in the province of Ontario. This group provided a
knowledgeable cohort, allowing us to draw strong conclusions with respect to the use of
the PPP model in general in the health-care field as well as specifics with respect to the
Brampton Civic Hospital project.
Finally, a factor analysis was conducted. The factor analysis was based on the risk
component questions in the survey.
key benefits in determining the life-cycle value of a PPP project. Our stakeholder
discussions suggested that clinical care provided by nurses, physicians and other allied
health professionals remain in the public realm.
The survey indicated that public opinion must be adequately addressed with respect
to the transfer of risk. The survey indicated that knowledgeable health-care professionals
were prepared to transfer design, construction and parking services to the private sector.
There was considerable concern with respect to transferring nursing services, non-nursing
clinical services and hospital operations. This was surprising, as Ontario hospitals have
routinely employed private sector agencies for the provision of nursing services when a
shortfall occurs. Additionally, clinical services such as diagnostic imaging and laboratory
services have also been contracted out in some hospitals for many years. Survey results
indicated that governance structures, property rights and construction quality were critical
components of risk transfer. Again, this is surprising, as hospitals must, by law, remain
public institutions. Therefore, the concern with respect to property rights appears
unfounded.
The Auditor General of Ontario (AG) conducted a detailed analysis of the Brampton
Civic Hospital project. The focus of this report was on risk and value for money. The AG
concluded that the initial public sector comparator, which included a 13% cost overrun
valued at CAD 67 million, was excessive. The report also questioned the degree of
competition in the Canadian marketplace at that time. As this was the first PPP health
capital project, the AG report suggested that very few contractors in the province of Ontario
were capable of bidding on this type of contract. Therefore, procurement would have been
restricted to a small group regardless of the procurement approach used. From the Auditor
General’s report, it is clear that best practice as articulated in the literature was not
followed in this case, as the public sector comparator (PSC) was conducted after the project
had been approved.
Stakeholders indicated that the public sector was not fully prepared to transfer key
elements of the project to the private sector. As a result, it is argued that the public did not
receive the full benefits of the PPP model due to the inability to effectively transfer risks
from the public to the private sector.
Cost reductions and efficiency. Cost reductions are one of the key benefits of the PPP
model. These reductions should arise due to embedded knowledge and economies of scale
in the private sector and due to the ability to extract margins via a competitive bidding
process. Stakeholders indicated that there was, indeed, a lack of competition in the bidding
process for the Brampton Civic Hospital project. A comparison with the PPP project in
Abbotsford, British Columbia, Canada, indicated that the utilisation of international firms
enhanced significantly the capacity to capture best practices as well as to gain cost
efficiencies. Survey results confirm the views of stakeholders. Only 10% of survey
respondents indicated that there was sufficient competitiveness due to a lack of qualified
bidders for Brampton Civic Hospital. The report of the Auditor General of Ontario
questioned the rationale for a significant difference in cost estimates provided by two
independent consultants. There was concern that the PSC was not adequately addressed.
At that time, the cost of public sector borrowing was significantly lower than the weighted
average cost of capital of the firms bidding on the project. As a result, the Auditor General
estimated that there would have been savings of CAD 200 million over the life of the project
if the public sector contracting model had been utilised instead of the PPP model. It is the
norm in most developed countries that the cost of capital for the public sector will be lower
than that of the private sector. However, our analysis suggests that this is not the definitive
rationale for assessing cost reductions and efficiencies. It is important to assess the project
over its entire life cycle to fully determine the benefits that will be attained through the PPP
model. This is specifically true with respect to the characteristics of a DBFM model, which
should give the private sector the incentive to achieve cost efficiencies over the life of the
project.
Equity, access and improved performance. Performance does not exist in a vacuum. To
adequately assess performance, it is necessary to benchmark against best practices both
domestically and internationally. For the purposes of this exercise, we have focused our
best practice research on the performance of Ontario hospitals. Stakeholders indicated
that the media-driven perceptions with respect to the quality of care were important in
determining public acceptance of the Brampton Civic Hospital project. The occurrence of a
number of deaths and other adverse events during the opening of the hospital suggested
that there were significant performance issues and that these issues were the direct result
of the utilisation of a PPP model. We compared standardised hospital mortality ratios for
the William Osler Health Centre, of which the Brampton Civic Hospital is a component. The
data indicate that the risk-adjusted experience at the William Osler Health Centre is better
than the benchmark with respect to the expected number of deaths. With respect to
metrics of patient satisfaction, the William Osler Health Centre had been performing below
provincial average prior to the establishment of the Brampton Civic Hospital.
The survey of health-care professionals in the province of Ontario indicated that
almost 60% believed that the involvement of the private sector resulted in issues with
respect to the delivery of care. A number of respondents expressed concern with respect to
the potential privatisation of health-care services in the province. This, of course,
represents a fundamental misunderstanding of the PPP model used in the Brampton Civic
Hospital project. A deeper meaning may be that health-care professionals are concerned
that private sector participation in the PPP model represents the beginning of a long-term
movement towards private, for-profit health care.
factor analysis to determine whether or not risk transfer grouped to underlying constructs.
This methodology allowed us to group issues and characteristics by a common set of
themes.
Based on statistical significance, we identified 12 key variables from the analysis. The
risk factors identified are as follows:
● control or attest function;
● goal alignment;
● issues of complexity and governance.
We then constructed a factor matrix in order to determine the key themes that
emerged from the statistical analysis. The three key themes were:
● communications based on well-articulated goals;
● public sector control of the key risk factors;
● timing, flexibility, best practice and governance in the four stages of design, build,
finance, maintain.
4.2. Risk
A vast body of literature and sound methodology exist for transferring risks in PPPs.
The case study suggests that project-specific implementation of best practice, however, is
challenging and that actualisation of theory was difficult in the case of the Brampton Civic
Hospital. It is clear that best practice was not followed and that risk was not effectively
transferred in this case. Factors that appeared to limit the optimisation of risk transfer
included a lack of availability of knowledgeable and experienced participants. These
participants are not readily available in the health system but must be involved to assist in
accurate risk estimation and the assurance of transfer.
To effectively transfer risk, control over key elements must be relinquished by the
public sector. Guidance and education for public sector participants on these key elements
will be important to assure the success of future PPP projects in the health sector.
The project experienced a prolonged process from design to build, finance and
maintain. The process did not provide sufficient flexibility to address emerging issues,
such as:
● population growth;
● changes in capital cost estimates;
● inability to transfer risk;
● building modifications to incorporate new technologies;
● a difficult transition with the weekend closure of the Peel Memorial Hospital and the
opening of the Brampton Civic Hospital.
4.5. Governance
A lack of in-house resource expertise at the hospital appears to have led to poor
application of best practice PPP methodologies in the case of the Brampton Civic Hospital.
At the time, no government agency existed to provide expertise or oversight to the PPP
project. Subsequently, the Ontario government has created Infrastructure Ontario. This
agency provides oversight and expertise to PPP projects in the province today. This agency
is encouraged to expand its mandate to include the provision of guidance beyond the
traditional quantitative elements. Health capital projects also require expertise and
guidance on best practice in qualitative elements such as the nature of contracts, dispute
resolution, communications and stakeholder engagement.
5. Conclusions
There were undoubtedly a number of serious issues with respect to the Brampton Civic
Hospital PPP project. Our conclusion is that none of these problems were the direct result of
private sector participation in this project through a PPP approach. This conclusion was
confirmed by an assessment of the benchmark metrics provided by the various data-
gathering agencies. The metrics indicate that deaths and negative clinical outcomes were no
different at Brampton Civic Hospital than what would be expected in a large, general (non-
teaching) hospital.
The obvious conclusion is that there was a major breakdown in communications and
application of best practice PPP methodologies at every stage of the project. Design changes
were not adequately taken into account to reflect technological change from the original
design parameters to the final requirements for a modern hospital. Project participants did
not adequately inform the community with respect to the closure of the Peel Memorial
Hospital prior to the opening of the Brampton Civic Hospital. As a result, the community was
unprepared for the initial outcome, which resulted in fewer beds added to the regional
capacity. It is apparent that a number of stakeholders took the opportunity derived from this
lack of communication to present a negative picture with respect to the involvement of the
private sector in health care.
6. Recommendations
Based upon our analysis and conclusions, we propose the following recommendations:
● A formal communications and engagement plan for managing public perceptions,
particularly in Canada given the sensitivity of “privatisation” of health services, will assist in
the management of critical issues in a timely manner.
● As the PPP model evolves into more sensitive policy areas such as health care, care must be
taken to clarify the nuances of the PPP model in order to effectively manage the elements of
sociality and political rhetoric that can have significant influence on PPP project outcomes.
● Opportunities to enhance the current model include additional support to health service
providers post-construction and better communications with the public to improve PPP
project outcomes.
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